The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on September 7, 2016 and decided to reduce the refinancing rate by 25 basis points to 6.5 percent.
The monetary policy decision is based on the macroeconomic forecast, according to which the phasing out of tight monetary policy must continue in order for inflation to reach its target value. According to the forecast, other things equal, the monetary policy rate may be expected to decrease to 6% in the medium term.
The annual CPI inflation in August dropped to 0.9%, in line with the current forecasts. Expiration of base effect was an important factor causing the inflation to decrease. Weak aggregate demand pushed inflation down as well. According to the current forecast the inflation will remain low in the coming quarters reaching the target by the end of 2017.
Improvement in aggregate demand and, as a result, inflation closing on its target, is supported by both the phasing out of the tight monetary policy and fiscal stimulus. The further changes in the monetary policy rate will depend on the processes taking place in the economy, possible realization of external sector risks and the magnitude of shock transmission from trade partner countries to Georgian economy.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability.
The next meeting of the Monetary Policy Committee will be held on October 26, 2016.